Staples

Staples and Fujitsu collaborate to reduce IT service costs

Performance-based agreement guarantees measurable results

Retailers and technology vendors have long struggled at the contract negotiating table to balance pricing and profit margins. But the partnership between two industry leaders - office superstore pioneer Staples, Inc. (NASDAQ: SPLS) and IT lifecycle solutions provider Fujitsu Transaction Solutions Inc. - demonstrates that a collaborative rather than combative effort can generate measurable benefits for both parties.

In late 1999, Staples and Fujitsu initiated an innovative service-level agreement (SLA) that focused on a collaborative effort to reduce costs and improve performance for both partners. The agreement covered more than 800 Staples stores in the U.S. and about 150 in Canada. Working in partnership, the companies set aggressive targets across a broad range of performance metrics such as average call response times, on-time completion of depot-repair work, reductions in average spend per device, and overall maintenance costs for point-of-sale terminals, among others.

The results of this partnership have been dramatic. Measurable results include:

A decrease of approximately 60 percent on the average maintenance spend per device, even while the number of devices per store grew about 20 percent annually and the number of Staples stores increased by about 15 percent annually.

Overall performance against the SLA has increased every year through the collaborative effort. In 2003, Fujitsu is delivering three tiers of service while averaging greater than 94 percent compliance for all service-related activity.

Staples has decreased its maintenance spend per POS terminal by 56 percent.

In Canada, at Staples Business Depot the number of POS systems has increased by more than seven percent, while total maintenance spend with Fujitsu has dropped by 11 percent.

Customer satisfaction ratings have risen to an unprecedented 8.64 on a scale of 1-10.

With this experience successfully behind them - and a renewed contract ahead of them - Staples and Fujitsu agree that a collaborative approach can have a profound impact on the contribution of strategic technology investments to the retailer's competitive position and bottom line improvements.

"From the start of our relationship, there has been a relentless focus on reducing our in-store technology costs, while improving our service levels," said Scott Floeck, Staples' senior vice president of information systems. "The results we have achieved are a true testimony to what can happen when a vendor and retailer partner to implement technology solutions that enhance business performance and generate a measurable return on investment."

Guaranteed cost reductions

Based on its ability to meet or beat stringent service performance metrics and contribute to significantly reduced costs for in-store technologies, in June 2003 Staples expanded the partnership and awarded Fujitsu a new three-year contract.

Fujitsu has taken an approach - unique for IT maintenance suppliers - in which the contract is based on the vendor's costs plus a margin that both vendor and customer agree is appropriate. The nature of this "cost-visible" approach turns the partnership focus to reducing costs on both sides.

"This focus creates a win/win culture that enables the collaborative team to do what in the past was impossible: improve performance while reducing overall costs," Floeck said. "Staples and Fujitsu work as a single team to manage the entire IT lifecycle, resulting in true proactive service delivery."

The new contract also specifies not only a projected rate of cost reduction over the life of the contract, it actually guarantees that cost reductions will achieve a certain rate.

Fujitsu will be measured on its ability to continue improving performance to SLA while delivering further cost reductions on key metrics by up to 20 percent over the life of the contract. Focus areas will include technology procurement for both Fujitsu and third-party products; maintenance of in-store systems and replacements or upgrades to existing hardware; services such as staging and installation; and rollout of new stores.

"The new contract yet again raises the bar on performance levels and delivers additional service related cost reductions," Floeck said. "Throughout its services offering suite, Fujitsu has taken aim at identifying and decreasing the cost components that make up each service. These guaranteed reductions will - in some areas - deliver nearly a 20 percent effect over the three-year term."

The renewal includes about 1,150 Staples retail locations in the U.S., but also awards duplicate responsibilities to Fujitsu in Canada for about 200 stores, as well as locations in Belgium, the U.K. and Germany.